Loss Deals Big Blow to JetBlue

Once a darling of the airline industry, JetBlue Airways Corp. is now in a spot many industry experts hardly thought possible: the red.

For the first time since it began flying in 2000, the airline -- known for low fares and such extras as leather seats and individual TVs -- lost money, $42 million in the last quarter of 2005, an amount larger than expected.

In announcing fourth-quarter results last month, JetBlue said that, based on current and expected fuel prices, it did not expect to make a profit this year.

JetBlue founder and Chairman David Neeleman has said the airline needs to do a better job raising revenue while maintaining its low-fare position.

None of this sounds like the JetBlue that initially electrified the industry. The airline’s life now appears as turbulent as it has been for other U.S. carriers buffeted by fuel costs and competition.

As JetBlue has stubbed its toe, in the words of several analysts, questions about the airline’s future have been raised.

“The bloom is off the rose in many ways,” David Stempler, president of the Air Travelers Assn. in Washington, said of the airline. “Operationally and financially, they’re like anybody else now.”

Indeed, JetBlue blames its problems primarily on jet fuel costs, over which it has no control other than to seek to lock in lower prices, and it says it did not do a good job when it came to betting on fuel costs last year. It hedged only 20% of its fuel costs, at $29.95 a barrel. Fuel hit almost $70 a barrel.

Yet, even amid rising fuel costs and bottom-line issues, JetBlue is showing signs of maturation.

“There’s little hiding the fact that over-aggressive growth, unrelenting competition, deteriorating operational integrity, earnings disappointments and -- longer term -- shareholder value destruction are among common trademarks of mature, hub-and-spoke multi-fleet operators,” said Jamie Baker, who follows the airline industry for JPMorgan Chase in Manhattan, in a February report.

“Against this backdrop, JetBlue appears to finally be acting like an airline, as opposed to the mythical uber profit machine some may have believed it to be. Frankly, this maturation has occurred far more quickly than we ever would have envisioned,” he said.

In late February, Baker issued another report after Delta Air Lines had published its summer schedule, minus its discontinued Song brand. In that report, Baker upgraded JetBlue.

But other analysts and experts point to some of JetBlue’s problems:

Its fleet of A-320 Airbus planes is growing older and will need more costly maintenance work soon.

It expanded too fast, too soon. JetBlue added routes and new aircraft at a dizzying rate. When it began operations in February 2000, JetBlue served two cities, Buffalo, N.Y., and Fort Lauderdale, Fla.; today it serves 35 cities with more than 400 daily flights.

JetBlue was too aggressive in bringing on line new Embraer 190 airplanes it began to take delivery of in the fall. JetBlue will fly two types of aircraft, the A-320s and E-190s. It previously flew only Airbuses.

Shares of the company, which went public in 2002, reached a record high of nearly $31 in 2003. They have since plunged and hit a multiyear low of $9.72 on Monday, down 55 cents.

The major carriers, several of which fell into bankruptcy in the last few years, have largely cleaned up their balance sheets and have become tougher competitors for JetBlue and other low-cost airlines.

“The challenges JetBlue faces are some we were not able to get ahead of, including and most importantly the cost of fuel,” said Jenny Dervin, JetBlue spokeswoman.

“But we are completely focused and looking at 2006 and beyond, especially with our growth plans. Aircraft deliveries [of E-190s] are still coming in.”

JetBlue, now the largest carrier at New York’s John F. Kennedy Airport, has announced plans to expand to at least 10 additional cities this year, including Richmond, Va.; Austin, Texas; Portland, Maine; and Hamilton in Bermuda, using some of the 10 new E-190s it has received from manufacturer Embraer of Brazil. JetBlue has about 7,984 full-time employees.

The airline continues to build on its reputation for amenities and facilities.

It is spending nearly $800 million to construct a 635,000-square-foot terminal at JFK, to be completed in 2009. It has introduced XM Satellite Radio in its airplanes, and in January, began serving Dunkin’ Donuts coffee aboard all its flights.

The most recent Transportation Department statistics show that in January, JetBlue’s flights arrived late 29.4% of the time, the third consecutive month that JetBlue finished with the worst on-time arrival rate in the industry.

“We’re not pleased by that at all,” Dervin said. “That is one of the main areas we need to improve. This is totally unacceptable.”